Taiwan: local rules

The arm's length rule is in Income Tax Act art. 43-1. If related enterprises arrange revenue, cost, expense or profit in a way that is not at arm's length to avoid or reduce tax, the tax authority may adjust the income after approval from the Ministry of Finance. The detailed rules are in the Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing (the TP Regulations, last amended 28 December 2020). They follow the OECD approach of comparability, the most appropriate method and a range. Related parties include a 20% voting holding, the highest holding of at least 10%, half the same directors, and control by financing, licences, purchases or sales (art. 3). The corporate income tax rate is 20% (ITA art. 5).

There are three tiers. First, the CIT return carries related party and transaction disclosure forms (pages B2 to B6, art. 21 and MOF Order 09604503530); they start at total revenue of NT$30m with a foreign related party, a tax incentive or a loss deduction, or NT$300m otherwise. Second, a transfer pricing report (local file) must be ready at filing (art. 22) and handed over within one month of a written audit letter, with one extension of up to one month. Substitute documents are enough if total revenue is under NT$300m, if controlled transactions are under NT$200m, or if revenue is NT$300m to under NT$500m with no incentives, large loss deduction or foreign related party (MOF Order 09704555160). Third, a master file must be ready at filing and delivered within 12 months after year end if revenue is NT$3bn or more and cross-border controlled transactions are NT$1.5bn or more (art. 21-1, MOF Order 10804651540). Chinese is required, but an English master file or report may be shown after one month's notice.

The regulations list methods by transaction type (arts. 10 to 13): comparable uncontrolled price, resale price, cost plus, comparable profits (the TNMM equivalent), profit split, comparable uncontrolled transaction for intangibles, and an income method added in 2020. The most appropriate method is chosen by comparability and data quality (art. 9). Current year data is used, but multi-year data is allowed in some cases such as business cycles and profit-based methods (art. 7(4)). If comparables are incomplete, the arm's length range is the 25th to 75th percentile, a result outside it is adjusted to the median, and no adjustment is made if it would lower Taiwan tax (art. 7(5)).

There is no special TP fine. If the enterprise cannot show a TP report or substitute documents, the tax authority can use the data it finds or fix income on industry profit standards (art. 33(2)), and can fine for not producing documents under Tax Collection Act art. 46 (NT$3,000 to NT$30,000). After a TP adjustment, ITA art. 110 applies if a set case is met (art. 34): a price of 2 times or more, or 50% or less, of the arm's length price; an adjustment of 10% of income and 3% of revenue; no TP report and no other proof; or an undisclosed transaction adjustment of 5% of income and 1.5% of revenue. The fine is up to 2 times the evaded tax, or 3 times if no return was filed. A late CIT return costs 10% of assessed tax (NT$1,500 to NT$30,000), then 20% (NT$4,500 to NT$90,000) after the 15 day notice period (ITA arts. 79 and 108).

Taiwan has not enacted Pillar Two. The laws database shows the Income Basic Tax Act, the likely vehicle, was last amended on 22 February 2022 and has no IIR, QDMTT or UTPR. The Ministry of Finance said in 2023 that its plans had no set schedule, and in August 2024 it proposed a 15% minimum tax rate for large groups from the 2025 tax year. News reports of April and October 2026 say the Executive Yuan has not approved this, the rate stays at 12%, and a task force is still studying the IIR, UTPR and QDMTT. No Pillar Two filing exists in Taiwan.

The CIT return is due 1 to 31 May for calendar years, and a deadline on a weekend or public holiday moves to the next working day (Administrative Procedure Act art. 48), as when 31 May 2026 moved to Monday 1 June. The Income Tax Act has no filing extension, although the Ministry extended the period for all taxpayers in some years. Advance pricing agreements need controlled transactions of NT$500m in total or NT$200m a year, and must be applied for before the first covered year ends (arts. 23 to 32). A final adjustment leads to a corresponding adjustment for the Taiwan counterparty (art. 35). ITA art. 43-4 (place of effective management of a foreign company) is enacted but has no start date.